1

RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
ASSIGENMENT:
Project Scope
An offer has been given by a Charitable Trust to develo and
build a fa!ility on a 11"### s$.% of lot in a ri%e lo!ality of
Pune &here '"### s$.% of area &ill be used by the trust for
housing" health fa!ilities for senior !iti(ens. '"### s$.%. &ill be
given free to the develoers as a !ost of develo%ent
Cost of )and is Rs. 11"###*+ s$.%
,looring se!ifi!ations for flooring-
+ 11. /ranite
+ 0#. Kota stone
+ '#. Mosai! !e%ent tiles
Develoers &ould li1e to have %ini%u% 12. net rofit on their
invest%ent. Develoer !an invest only Rs. 11 la1hs as his o&n
funds and !an raise not %ore than Rs. '# la1hs as ban1 loan.
Technical St!ie"
The te!hni!al study is to deter%ine the needs for %aterial and
hu%an %eans ne!essary to a!hieve the ob3e!tives. These ta1e
a!!ount of the %ar1et 4availability of ra& %aterial" there is a
de%and" !usto%er re$uire%ent5" regulatory and standards+
related rodu!t and also the finan!ial 4a%ount to invest and
returns e6e!ted5.
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1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
The study fo!uses on t&o general areas- study of suly and
the study of transfor%ation. To !arry out !riti!al analysis of
te!hni!al feasibility" there %ust be enough 1no&ledge of
te!hni!al" e!ono%i! and regulatory environ%ent.
Co"t o# Con"trction
The !ost of !onstru!tion in!ludes both the initial !aital !ost
and the subse$uent oeration and %aintenan!e !osts. 9a!h of
these %a3or !ost !ategories !onsists of a nu%ber of !ost
!o%onents.
The !aital !ost for a !onstru!tion ro3e!t in!ludes the
e6enses related to the initial establish%ent of the fa!ility-
)and a!$uisition" in!luding asse%bly" holding and
i%rove%ent
Planning and feasibility studies
Ar!hite!tural and engineering design
Constru!tion" in!luding %aterials" e$ui%ent and labor
,ield suervision of !onstru!tion
Constru!tion finan!ing
Insuran!e and ta6es during !onstru!tion
9$ui%ent and furnishings not in!luded in !onstru!tion
Inse!tion and testing
The oeration and %aintenan!e !ost in subse$uent years over
the ro3e!t life !y!le in!ludes the follo&ing e6enses-
)and rent" if ali!able
:erating staff
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RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
)abor and %aterial for %aintenan!e and reairs
Periodi! renovations
Insuran!e and ta6es
,inan!ing !osts
;tilities
The %agnitude of ea!h of these !ost !o%onents deends
on the nature" si(e and lo!ation of the ro3e!t as &ell as the
%anage%ent organi(ation" a%ong %any !onsiderations. The
o&ner is interested in a!hieving the lo&est ossible overall
ro3e!t !ost that is !onsistent &ith its invest%ent ob3e!tives.
It is i%ortant for design rofessionals and !onstru!tion
%anagers to reali(e that &hile the !onstru!tion !ost %ay be the
single largest !o%onent of the !aital !ost" other !ost
!o%onents are not insignifi!ant. ,or e6a%le" land a!$uisition
!osts are a %a3or e6enditure for building !onstru!tion in high+
density urban areas" and !onstru!tion finan!ing !osts !an rea!h
the sa%e order of %agnitude as the !onstru!tion !ost in large
ro3e!ts su!h as the !onstru!tion of nu!lear o&er lants.
71#+#2+10+2''8+7111
1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
The total !ost of the ro3e!t is !al!ulated as belo&-
Particlar"
R"$%"&
$#t
A'on
t
Cost of <uerstru!ture 0'#
7071=#
##
Cost of >ri!1 &or1"
laster et! =#
020?2#
#
Cost of 9le!tri! &or1 112
'217'8
#
Cost of Plu%bing =#
020?2#
#
Cost of ,inishing '0
7=#872
#
Cost of /ranite
,looring 1?#
8==88#
#
Cost of Kota ,looring 0#
71'72#
#
Cost of Mosai!
,looring 0#
71'72#
#
TOTA( COST
)*92+
,-.
@or1 <!hedule reresents the ne!essary fra%e&or1 to
er%it s!heduling of !onstru!tion a!tivities" along &ith
esti%ating the resour!es re$uired by the individual &or1 tas1s"
and any ne!essary re!eden!es or re$uired se$uen!e a%ong
the tas1s. The ter%s &or1 Atas1sA or Aa!tivitiesA are often used
inter!hangeably in !onstru!tion lans to refer to se!ifi!"
defined ite%s of &or1. The s!heduling roble% is to deter%ine
an aroriate set of a!tivity start ti%e" resour!e allo!ations
and !o%letion ti%es that &ill result in !o%letion of the
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1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
ro3e!t in a ti%ely and effi!ient fashion. Constru!tion lanning
is the ne!essary fore+runner to s!heduling. In this lanning"
defining &or1 tas1s" te!hnology and !onstru!tion %ethod is
tyi!ally done either si%ultaneously or in a series of iterations.
The definition of aroriate &or1 s!heduling !an be a
laborious and tedious ro!ess" yet it reresents the ne!essary
infor%ation for ali!ation of for%al s!heduling ro!edures.
<in!e !onstru!tion ro3e!ts !an involve thousands of individual
&or1 tas1s" this definition hase !an also be e6ensive and
ti%e !onsu%ing. ,ortunately" %any tas1s %ay be reeated in
different arts of the fa!ility or ast fa!ility !onstru!tion lans
!an be used as general %odels for ne& ro3e!ts. ,or e6a%le"
the tas1s involved in the !onstru!tion of a building floor %ay be
reeated &ith only %inor differen!es for ea!h of the floors in
the building.
71#+#2+10+2''8+7111
1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
The /or0 "che!le on $uarterly basis for the ro3e!t is given
belo&-
I1 Otlin
e
N'2e
r
Na'e 1ra
tion
Start Fini"h

1 1.# Contract" 3UARTER
4

7 1.1 BB<uly )ot <ale
Agree%ent
#.##d 1+May+
7#17
1+May+
7#17
? 1.7 BB<uly Constru!tion
Agree%ent
#.##d 1+May+
7#17
1+May+
7#17
0 1.? BB<uly Contra!t Plans #.##d 1+May+
7#17
1+May+
7#17
' 1.0 BB<uly Contra!t
<e!ifi!ations
#.##d 1+May+
7#17
1+May+
7#17
8 1.' BB<uly Contra!t <ite
Plan
#.##d 1+May+
7#17
1+May+
7#17
C 1.8 BB<e!ure ,inan!ing #.##d 1+May+
7#17
1+May+
7#17
2 1.C BBConstru!tion )oan
<ettle%ent
#.##d 1+May+
7#17
1+May+
7#17
= 7.# 1oc'ent Re5ie/ 6
Re5i"ion

11 7.1 BBRevie& D ,inali(e Plans 1'.##
d
7+May+
7#17
78+May+
7#17
11 7.7 BBRevie& D ,inali(e
<e!ifi!ations
7#.##
d
7C+May+
7#17
1'+Eun+
7#17
17 7.? BBRevie& D ,inali(e <ite
Plan
1.##d 18+Eun+
7#17
1C+Eun+
7#17
1? 7.0 BBPrint Constru!tion
Dra&ings
'.##d 12+Eun+
7#17
77+Eun+
7#17
71#+#2+10+2''8+7111
1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
10 7.' BBArove Revised Plans #.##d 7?+Eun+
7#17
7?+Eun+
7#17
1' 7.8 BBArove Revised
<e!ifi!ations
#.##d 7?+Eun+
7#17
7?+Eun+
7#17
18 7.C BBArove Revised <ite
Plan
#.##d 7?+Eun+
7#17
7?+Eun+
7#17
1C ?.# Site 7or0
12 ?.1 BBClear )ot ?.##d 70+Eun+
7#17
78+Eun+
7#17
1= ?.7 BB<tri Tosoil D
<to!1ile
1.##d 7C+Eun+
7#17
7C+Eun+
7#17
7# ?.? BB<ta1e )ot for
96!avation
1.##d 72+Eun+
7#17
72+Eun+
7#17
71 ?.0 BBRough grade lot 1.##d 7=+Eun+
7#17
7=+Eun+
7#17
77 ?.' BB96!avate for foundation 7.##d ?#+Eun+
7#17
1+Eul+
7#17
7? 0.# Fon!ation 3UARTER
2

70 0.1 BB)ayout footings 1.##d 7+Eul+7#17 7+Eul+
7#17
7' 0.7 BBDig ,ootings D Install
Reinfor!ing
1.##d ?+Eul+7#17 ?+Eul+
7#17
78 0.? BB,ooting Inse!tion #.##d 0+Eul+7#17 0+Eul+
7#17
7C 0.0 BBPour footings 1.##d '+Eul+7#17 '+Eul+
7#17
72 0.' BBPin ,ootings 1.##d 8+Eul+7#17 8+Eul+
7#17
7= 0.8 BB<to!1 >lo!1" Mortar"
<and
1.##d C+Eul+7#17 C+Eul+
7#17
?# 0.C BB>uild >lo!1 ,oundation 1'.##
d
2+Eul+7#17 77+Eul+
7#17
?1 0.2 BB,oundation Certifi!ation #.##d 77+Eul+
7#17
77+Eul+
7#17
?7 0.= BB,ill >lo!1 Cores &*
Con!rete
1.##d 77+Eul+
7#17
77+Eul+
7#17
?? 0.1 BB<teel Delivery 1.##d 7?+Eul+
7#17
7?+Eul+
7#17
?0 0.1 BB<et )intels" >olts" Ca
>lo!1
7.##d 70+Eul+
7#17
7'+Eul+
7#17
71#+#2+10+2''8+7111
1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
?' 0.1 BB)u%ber Delivery 1.##d 78+Eul+
7#17
78+Eul+
7#17
?8 0.1 BB@aterroofing and
Drain Tile
1.##d 7C+Eul+
7#17
7C+Eul+
7#17
?C '.# Ro8h Carpentr9
?2 '.1 BB<et <teel 1.##d 72+Eul+
7#17
72+Eul+
7#17
?= '.7 BB1st ,loor De!1 ,ra%ing 0.##d 7=+Eul+
7#17
1+Aug+
7#17
0# '.? BB1st ,loor @all ,ra%ing 0.##d 7+Aug+
7#17
'+Aug+
7#17
01 '.0 BB7nd ,loor De!1 ,ra%ing 7.##d 8+Aug+
7#17
C+Aug+
7#17
07 '.' BB7nd ,loor @all ,ra%ing ?.##d 2+Aug+
7#17
11+Aug+
7#17
0? '.8 BB<et Roof Trusses 7.##d 11+Aug+
7#17
11+Aug+
7#17
00 '.C BB,ra%e Roof C.##d 11+Aug+
7#17
1C+Aug+
7#17
0' '.2 BBInstall Roof Ply&ood '.##d 12+Aug+
7#17
77+Aug+
7#17
08 '.= BBInstall @indo&s D
Doors
7.##d 7?+Aug+
7#17
70+Aug+
7#17
0C '.1 BB,ra%e >ase%ent ?.##d 7'+Aug+
7#17
7C+Aug+
7#17
02 '.1 BB,ra%e >ase%ent
>ul1heads
7.##d 11+Aug+
7#17
11+Aug+
7#17
0= 8.# Concrete Sla2"
'# 8.1 BB>ase%ent <lab
Prearation
7.##d 17+Aug+
7#17
1?+Aug+
7#17
'1 8.7 BBTer%ite Treat%ent
>ase%ent <lab
1.##d 10+Aug+
7#17
10+Aug+
7#17
'7 8.? BB<lab Inse!tion 1.##d 1'+Aug+
7#17
1'+Aug+
7#17
'? 8.0 BBPour >ase%ent <lab 1.##d 18+Aug+
7#17
18+Aug+
7#17
'0 8.' BBPre /arage <lab 1.##d 1C+Aug+
7#17
1C+Aug+
7#17
'' 8.8 BBTer%ite Treat%ent
/arage <lab
1.##d 12+Aug+
7#17
12+Aug+
7#17
'8 8.C BBPour /arage <lab 1.##d 1=+Aug+ 1=+Aug+
71#+#2+10+2''8+7111
1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
7#17 7#17
'C C.# Pl'2in8 Ro8h-in
'2 C.1 BBPlu%bing <ub+slab 7.##d 7#+Aug+
7#17
71+Aug+
7#17
'= C.7 BBPlu%bing )ayout 1.##d 77+Aug+
7#17
77+Aug+
7#17
8# C.? BBPlu%bing rough+in '.##d 7?+Aug+
7#17
7C+Aug+
7#17
81 2.# Electric Ro8h-in
87 2.1 BB<et 9le!tri! >o6es 7.##d 72+Aug+
7#17
7=+Aug+
7#17
8? 2.7 BBInstall 9le!tri! <ervi!e
Panel
7.##d ?#+Aug+
7#17
?1+Aug+
7#17
80 2.? BB9le!tri!al @al1+through 1.##d 1+<e+
7#17
1+<e+
7#17
8' 2.0 BB9le!tri!al Rough+&ire 10.##
d
7+<e+
7#17
1'+<e+
7#17
88 =.# Specialt9 Ro8h-in"
8C =.1 BBCentral Fa!uu% Rough+
in
'.##d 18+<e+
7#17
7#+<e+
7#17
82 =.7 BBAlar% <yste% Rough+in '.##d 71+<e+
7#17
7'+<e+
7#17
8= =.? BBTelehone <yste%
Rough+in
'.##d 78+<e+
7#17
?#+<e+
7#17
C# =.0 BBTelevision <yste%
Rough+in
'.##d 1+:!t+
7#17
'+:!t+
7#17
C1 =.' BBAudio Fisual Rough+in '.##d 8+:!t+
7#17
11+:!t+
7#17
C7 11.# 9le!tri!al inse!tion #.##d 11+:!t+
7#17
11+:!t+
7#17
C? 11.# ,ra%ing Inse!tion #.##d 11+:!t+
7#17
11+:!t+
7#17
C0 17.# Roo#in8
C' 17.1 BBRoofing Paer Installed ?.##d 11+:!t+
7#17
17+:!t+
7#17
C8 17.7 BB<to!1 Roof <hingles 1.##d 17+:!t+
7#17
1?+:!t+
7#17
CC 17.? BBInstall Roof <hingles C.##d 10+:!t+
7#17
7#+:!t+
7#17
C2 1?.# E:terior Fini"he"
C= 1?.1 BB<iding ?.##d 7#+:!t+ 7#+:!t+
71#+#2+10+2''8+7111
1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
7#17 7#17
2# 1?.7 BB96terior Tri% C.##d 7#+:!t+
7#17
7#+:!t+
7#17
21 1?.? BB>ri!1 Ar!h ,or%s 1.##d 7#+:!t+
7#17
7#+:!t+
7#17
27 1?.0 BB>ri!1 Feneer 0'.##
d
7#+:!t+
7#17
7#+:!t+
7#17
2? 10.# In"lation
20 10.1 BBCaul1 D Air <eal 1.##d 7#+:!t+
7#17
71+:!t+
7#17
2' 10.7 BBDraft D ,ire <to 1.##d 77+:!t+
7#17
7?+:!t+
7#17
28 10.? BBInsulation ?.##d 70+:!t+
7#17
78+:!t+
7#17
2C 1'.# Floor Fini"he" 3UARTER
*

22 1'.1 BBCera%i! Tile 1'.##
d
7C+:!t+
7#17
11+Nov+
7#17
2= 1'.7 BBInstall Hard&ood ,loor 0.##d 11+Nov+
7#17
10+Nov+
7#17
=# 1'.? BB<and" <tain" <eal
Hard&ood
'.##d 1'+Nov+
7#17
1=+Nov+
7#17
=1 1'.0 BBInstall Caret 0.##d 7#+Nov+
7#17
7?+Nov+
7#17
=7 1'.' BB,inal Coat Hard&ood 7.##d 70+Nov+
7#17
7'+Nov+
7#17
=? 18.# Paint
=0 18.1 BBPre Dry&all for Pri%e
Coat
7.##d 78+Nov+
7#17
7C+Nov+
7#17
=' 18.7 BBPri%e Paint Dry&all 7.##d 72+Nov+
7#17
7=+Nov+
7#17
=8 18.? BBPre Tri% for Pri%e
Coat
7.##d ?#+Nov+
7#17
1+De!+
7#17
=C 18.0 BBPri%e Tri% 7.##d 7+De!+
7#17
?+De!+
7#17
=2 18.' BB,inish Coat Tri% 11.##
d
0+De!+
7#17
1?+De!+
7#17
== 18.8 BB,inish Coat Dry&all 10.##
d
10+De!+
7#17
7C+De!+
7#17
11
#
18.C BBCaul1 96terior @indo&s
D Doors
1.##d 72+De!+
7#17
7=+De!+
7#17
71#+#2+10+2''8+7111
1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
11
1
18.2 BB,inish Coat 96terior
Tri% D <iding
1.##d ?#+De!+
7#17
?1+De!+
7#17
11
7
1C.# E:terior (an!"capin8 3UARTER
-

11
?
1C.1 BBRough ,inal /rade 1.##d 1+Ean+7#17 1+Ean+
7#17
11
0
1C.7 BBPatios C.##d 7+Ean+7#17 2+Ean+
7#17
11
'
1C.? BBPor!hes '.##d =+Ean+7#17 1?+Ean+
7#17
11
8
1C.0 BB<ide&al1s C.##d 10+Ean+
7#17
7#+Ean+
7#17
11
C
1C.' BBDe!1s C.##d 71+Ean+
7#17
7C+Ean+
7#17
11
2
1C.8 BBDrive&ays 7.##d 72+Ean+
7#17
7=+Ean+
7#17
11
=
1C.C BB,inal /rade and <eed ?.##d ?#+Ean+
7#17
1+,eb+
7#17
11
1
12.# ;ar!/are
11
1
12.1 BBDoor Hard&are 7.##d 1+,eb+
7#17
7+,eb+
7#17
11
7
12.7 BB>ath Hard&are 7.##d ?+,eb+
7#17
0+,eb+
7#17
11
?
12.? BBMirrors '.##d '+,eb+
7#17
=+,eb+
7#17
11
0
12.0 BB<ho&er Doors 11.##
d
11+,eb+
7#17
1=+,eb+
7#17
11
'
12.' ,inal >uilding Inse!tion #.##d 1=+,eb+
7#17
1=+,eb+
7#17
11
8
1=.# Cleanin8
11
C
1=.1 BB@indo&s ?.##d 1=+,eb+
7#17
71+,eb+
7#17
11
2
1=.7 BBRough Clean ?.##d 77+,eb+
7#17
70+,eb+
7#17
11
=
1=.? BB,inal Clean 7.##d 7'+,eb+
7#17
78+,eb+
7#17
17
#
7#.# Final 7al0-thro8h
17 71.# Mo5e-in
71#+#2+10+2''8+7111
1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
1
Financial an! econo'ic E5alation
Capital + >usiness re$uires !aital. The ter% !aital is used
differently in different !onte6ts. It is used in the sense of %eans
of rodu!tion" usually the assets held by the fir%. It is also used
in the sense of finan!e obtained by a fir%. In a!!ounting"
!aital is used in the se!ond sense. A art of the finan!e
obtained by a fir% is in the for% of interest free !redit" su!h as
!redit allo&ed by suliers of %aterials or servi!es and
advan!e ay%ent re!eived by !usto%ers. The interest free
!redit is settled in the nor%al oerating !y!le of the business
and is not in!luded in the !aital.
Re5ene G Revenue is the in!o%e that arises fro% e6!hange
transa!tions &ith !usto%ers in the !ourse of ordinary a!tivities
of an enterrise. An entityHs revenue earning a!tivities in!lude
selling of goods" rendering of servi!es" and allo&ing others to
use entityHs resour!es yielding interest" royalties and dividends.
Revenue in!reases the e$uity of the enterrise. As a general
rin!ile" an enterrise re!ogni(es revenue &hen it re!eives
!ash" re!eivables or other !onsideration in its o&n a!!ount. ,or
e6a%le" in an agen!y relationshi" the agent re!ogni(es the
!o%%ission as revenue.
Finance Re"orce 'o2ili<ation G Resour!e %obili(ation !an
fa!ilitate the flo& of resour!es fro% various sour!es and
!ataly(e the flo& of additional resour!es fro% offi!ial and
71#+#2+10+2''8+7111
1
RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
rivate institutions. ,or ro3e!ts and rogra%s that are too
large to be handled by one funding agen!y" %obili(ing !o
finan!ing fro% various funding sour!es !an hel %eet these
large resour!e re$uire%ents. Resour!es !an be in any for%
su!h as finan!es" te!hnology" %ano&er both s1illed and labor"
1no&ledge" infor%ation" et!
Financial accontin8 + ,inan!ial a!!ounting !onsists of
re!ording" !lassifying and analy(ing the business transa!tions
so as to fa!ilitate the rearation of Profit and loss a!!ount for
a eriod and also the osition state%ent 4i.e. >alan!e <heet5 as
on a arti!ular day. Thus" the e%hasis of finan!ial a!!ounting
is on the as!ertain%ent of rofit and loss of the !on!ern and
not on the %ore i%ortant ase!ts of the business i.e.
lanning" !ontrol and de!ision+%a1ing.
Co"t accontin8 + Cost a!!ounting analyses the transa!tions
in an ob3e!tive %anner for the uroses of lanning" !ontrol
and de!ision %a1ing. Cost a!!ountan!y is the ali!ation of
!osting and Cost a!!ounting rin!ile" %ethods and te!hni$ues
to the s!ien!e" art and ra!ti!e of !ost !ontrol and the
as!ertain%ent of rofitability. It in!ludes the resentation of
infor%ation derived there fro% for the urose of %anagerial
de!ision %a1ing. Cost a!!ounting is also defined as the ro!ess
of a!!ounting for !ost fro% the oint at &hi!h e6enditure is
in!urred or !o%%itted to the establish%ent of its ulti%ate
relationshi &ith !ost !enters and !ost units.
Mana8e'ent accontin8 + Manage%ent a!!ounting is
another ase!t of a!!ounting &hi!h has develoed in re!ent
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RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
years and is being e%loyed in %any !on!erns as an
infor%ative %e!hanis% to aid the %anage%ent in de!ision
%a1ing by roviding various infor%ation they need for the
urose. >oth !ost and %anage%ent a!!ounting &or1ing
together !an 1ee the %anage%ent &ell infor%ed about &hat
is going on in the business and &hat !hanges" if any" is
re$uired to be given effe!t to.
Capital 2!8etin8 or invest%ent araisal is the lanning
ro!ess used to deter%ine &hether a fir%Is long ter%
invest%ents su!h as ne& %a!hinery" rela!e%ent %a!hinery"
ne& lants" ne& rodu!ts" and resear!h develo%ent ro3e!ts
are &orth ursuing. It is budget for %a3or !aital" or
invest%ent" e6enditures.
Many for%al %ethods are used in !aital budgeting" in!luding
the te!hni$ues su!h as A!!ounting rate of return" Net resent
value" Profitability inde6" Internal rate of return" Modified
internal rate of return" 9$uivalent annuity et!. These %ethods
use the in!re%ental !ash flo&s fro% ea!h otential invest%ent"
or ro3e!t Te!hni$ues based on a!!ounting earnings and
a!!ounting rules are so%eti%es used + though e!ono%ists
!onsider this to be i%roer + su!h as the a!!ounting rate of
return" and Areturn on invest%ent.A <i%lified and hybrid
%ethods are used as &ell" su!h as ayba!1 eriod and
dis!ounted ayba!1 eriod
Ca"h #lo/ #oreca"tin8 is in a !ororate finan!e sense" the
%odeling of a !o%any or assetHs future finan!ial li$uidity over
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RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
a se!ifi! ti%efra%e. Cash usually refers to the !o%anyHs total
ban1 balan!es" but often &hat is fore!ast is treasury osition
&hi!h is !ash lus short+ter% invest%ents %inus short+ter%
debt. Cash flo& is the !hange in !ash or treasury osition fro%
one eriod to the ne6tJ in the !onte6t of the entrereneur or
%anager" fore!asting &hat !ash &ill !o%e into the business or
business unit in order to ensure that outgoing !an be %anaged
to as to avoid the% e6!eeding !ash flo& !o%ing in. If there is
one thing entrereneurs learn fast" it is to be!o%e very good at
!ash flo& fore!asting.
Propo"e! Project Financin8
Capital "trctre refers to the &ay a !ororation finan!es its
assets through so%e !o%bination of e$uity" debt" or hybrid
se!urities. A fir%Is !aital stru!ture is then the !o%osition or
Istru!tureI of its liabilities. The roosed !aital stru!ture for
the ro3e!t is as belo&-
Capital Strctre
A""et
'#"###"#
##.##
E&it9
1"###"#
##.##
1e2t
0"###"#
##.##
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RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
The debt raised by the ro%oter is Rs 0# la!s. The total
debt &ould not be ta1en all at on!e rather it &ould be
disbursed in 0 e$ual $uarterly install%ents. This debt &ill !arry
a fi6ed interest e6ense as follo&s-
Month
A'o
nt
Int$
Pa9a2le
Int$
Pa9a2le
Clo"in8
(oan 2al
=R"$> Monthl9
3arter
l9
Ar+11
11###
## 11### 11#####
May+11 11### 11#####
Eun+11 11### ?#### 11#####
Eul+11
11###
## 7#### 7######
Aug+11 7#### 7######
<e+11 7#### 8#### 7######
:!t+11
11###
## ?#### ?######
Nov+11 ?#### ?######
De!+11 ?#### =#### ?######
Ean+17
11###
## 0#### 0######
,eb+17 0#### 0######
Mar+17 0#### 17#### 0######
?)oan disbursed in 0 e$ual $uarterly
install%ents
??Assu%ing interest K 17.
.a.
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RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
Pro#it Mea"re"
A rofit %easure is defined as an indi!ator of the
desirability of a ro3e!t fro% the standoint of a de!ision
%a1er. A rofit %easure %ay or %ay not be used as the basis
for ro3e!t sele!tion. <in!e various rofit %easures are used by
de!ision %a1ers for different uroses" the advantages and
restri!tions for using these rofit %easures should be fully
understood.
There are several rofit %easures that are !o%%only used
by de!ision %a1ers in both rivate !ororations and ubli!
!onstru!tion ro3e!ts. 9a!h of these %easures is intended to be
an indi!ator of rofit or net benefit for a ro3e!t under
!onsideration. <o%e of these %easures indi!ate the si(e of the
rofit at a se!ifi! oint in ti%eJ others give the rate of return
er eriod &hen the !aital is in use or &hen reinvest%ents of
the early rofits are also in!luded. <o%e of the %ost fre$uently
used rofit %easures are as follo&s-
4$ Net Ftre @ale an! Net Pre"ent @ale. @hen an
organi(ation %a1es an invest%ent" the de!ision %a1er loo1s
for&ard to the gain over a lanning hori(on" against &hat %ight
be gained if the %oney &ere invested else&here. A %ini%u%
attra!tive rate of return 4MARR5 is adoted to refle!t this
oortunity !ost of !aital. The MARR is used for !o%ounding
the esti%ated !ash flo&s to the end of the lanning hori(on" or
for dis!ounting the !ash flo& to the resent. The rofitability is
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RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
%easured by the net future value 4N,F5 &hi!h is the net return
at the end of the lanning hori(on above &hat %ight have been
gained by investing else&here at the MARR. The net resent
value 4NPF5 of the esti%ated !ash flo&s over the lanning
hori(on is the dis!ounted value of the N,F to the resent. A
ositive NPF for a ro3e!t indi!ates the resent value of the net
gain !orresonding to the ro3e!t !ash flo&s.
2$ Internal Rate o# Retrn. The internal rate of return 4IRR5 is
defined as the dis!ount rate &hi!h sets the net resent value of
a series of !ash flo&s over the lanning hori(on e$ual to (ero. It
is used as a rofit %easure sin!e it has been identified as the
A%arginal effi!ien!y of !aitalA or the Arate of return over !ostA.
The IRR gives the return of an invest%ent &hen the !aital is in
use as if the invest%ent !onsists of a single outlay at the
beginning and generates a strea% of net benefits after&ards.
Ho&ever" the IRR does not ta1e into !onsideration the
reinvest%ent oortunities related to the ti%ing and intensity
of the outlays and returns at the inter%ediate oints over the
lanning hori(on. ,or !ash flo&s &ith t&o or %ore sign
reversals of the !ash flo&s in any eriod" there %ay e6ist
%ultile values of IRRJ in su!h !ases" the %ultile values are
sub3e!t to various interretations.
*$ A!j"te! Internal Rate o# Retrn. If the finan!ing and
reinvest%ent oli!ies are in!ororated into the evaluation of a
ro3e!t" an ad3usted internal rate of return 4AIRR5 &hi!h refle!ts
su!h oli!ies %ay be a useful indi!ator of rofitability under
restri!ted !ir!u%stan!es. >e!ause of the !o%le6ity of
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RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
finan!ing and reinvest%ent oli!ies used by an organi(ation
over the life of a ro3e!t" the AIRR seldo% !an refle!t the reality
of a!tual !ash flo&s. Ho&ever" it offers an aro6i%ate value of
the yield on an invest%ent for &hi!h t&o or %ore sign reversals
in the !ash flo&s &ould result in %ultile values of IRR. The
ad3usted internal rate of return is usually !al!ulated as the
internal rate of return on the ro3e!t !ash flo& %odified so that
all !osts are dis!ounted to the resent and all benefits are
!o%ounded to the end of the lanning hori(on.
-$ Retrn on In5e"t'ent. @hen an a!!ountant reorts
in!o%e in ea!h year of a %ulti+year ro3e!t" the strea% of !ash
flo&s %ust be bro1en u into annual rates of return for those
years. The return on invest%ent 4R:I5 as used by a!!ountants
usually %eans the a!!ountantIs rate of return for ea!h year of
the ro3e!t duration based on the ratio of the in!o%e 4revenue
less dere!iation5 for ea!h year and the un+dere!iated asset
value 4invest%ent5 for that sa%e year. Hen!e" the R:I is
different fro% year to year" &ith a very lo& value at the early
years and a high value in the later years of the ro3e!t.
)$ Pa92ac0 Perio!. The ayba!1 eriod 4P>P5 refers to the
length of ti%e &ithin &hi!h the benefits re!eived fro% an
invest%ent !an reay the !osts in!urred during the ti%e in
$uestion &hile ignoring the re%aining ti%e eriods in the
lanning hori(on. 9ven the dis!ounted ayba!1 eriod
indi!ating the A!aital re!overy eriodA does not refle!t the
%agnitude or dire!tion of the !ash flo&s in the re%aining
eriods. Ho&ever" if a ro3e!t is found to be rofitable by other
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RACHANA M. KAPADIA
NCP-29
CONSTRUCTION FINANCE MANAGEMENT
%easures" the ayba!1 eriod !an be used as a se!ondary
%easure of the finan!ing re$uire%ents for a ro3e!t.
AI(IOGRAP;B % REA1INGS:
1. C:N<TR;CTI:N ,INANC9 MANA/9M9NT
T9CHNIL;9<" P;>)I<H9D >M NICMAR" 7#1#.
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